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Markets hit their worst levels of the session after Senate Majority Leader Harry Reid said the U.S. government appears headed over the fiscal cliff because of a lack of progress in negotiations between Republicans who control the House of Representatives and Democrats who control the Senate and White House.

But indexes recovered most of the losses late in the day on word that the House will be back in session Sunday evening. It is unclear what legislation the House might consider Sunday, since Speaker John Boehner is publicly insisting that the Senate must make the next move to avert the cliff.

“At the end of the day, this prevailing will-they-or-won’t they in Washington is causing a dip,” said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.

“But it’s tough to read too much into anything given that volumes are exceptionally low. All the players aren’t in the game so to speak.”

The Dow Jones industrials lost 18.28 points to 13,096.31, as data showed fiscal cliff worries are spreading to consumers.

The U.S. Conference Board said that its consumer confidence index fell this month to 65.1, down from 71.5 in November, the second straight decline and the lowest level since August.

The survey showed consumers were slightly more optimistic about current business conditions and hiring, but their outlook for the next six months deteriorated to its lowest level since 2011

Other data showed that the average number of Americans seeking unemployment benefits over the past month fell last week to the lowest level since March 2008.

The U.S. Labour Department said Thursday that weekly applications dropped 12,000 to a seasonally adjusted 350,000 in the week ended Dec. 22. The four-week average, a less volatile measure, fell to a nearly five-year low of 356,750.

On the Toronto market, losses were led by a 0.5 per cent decline in the financials subgroup as Sun Life Financial (TSX:SLF) moved down 26 cents to $26.35. TD Bank (TSX:TD) declined 72 cents to $83.27.

Commodities were mixed with February bullion up $3 to US$1,663.70 an ounce. The gold sector led advancers, up about 1.8 per cent with Barrick Gold Corp. (TSX:ABX) ahead 73 cents to C$34.24 while Goldcorp Inc. (TSX:G) advanced 46 cents to $35.98.

Support also came from the base metals sector, which rose 0.75 per cent while March copper was unchanged at US$3.60 a pound after rising five cents Wednesday. The gain, the largest in four weeks, came after workers rejected a wage proposal at BHP Billiton’s Escondida mine in Chile. Turquoise Hill Resources (TSX:TRQ) gained 21 cents to C$7.26.

The February crude oil contract on the New York Mercantile Exchange edged down 11 cents to US$90.87 a barrel. The energy sector was slightly higher while Canadian Natural Resources (TSX:CNQ) fell 40 cents to C$28.49 and Niko Resources (TSX:NKO) jumped $1.05 to $10.50.

A major TSX loser was Poseidon Concepts Corp. (TSX:PSN), which plunged more than 50 per cent after the oilfield service company suspended its dividend, replaced its CEO and initiated a board review of the management and business processes. Poseidon shares were down $1.83 at $1.48 after the company said it has established a special committee of the board to review the recent writeoff of certain accounts owing to it.

The tech sector also provided lift with Research In Motion Ltd. (TSX:RIM) up $1.20 or 11.43 per cent to $11.70, mirroring an 11 per cent gain on U.S. markets on Wednesday. RIM stock plunged about 25 per cent last week as analysts raised concerns about less revenue from the lucrative service fees charged by the company to use its secure network. The stock had been on a roll earlier in December on rising optimism about the new BlackBerry 10 lineup, which is being launched at the end of January.

Elsewhere on the corporate front, Bombardier Aerospace has received a new order for six Learjet 75 business jets. Bombardier shares added a penny to $3.76.